The Aussie Dollar hit its highest since the middle of last month on Tuesday as the central bank hiked interest rates.

The Reserve Bank of Australia (RBA) increased the cash rate to 4.1%, an 11-year high, stating the increase would boost confidence that inflation would revert to target within a reasonable time period, but added that additional tightening might be needed.

At the time of writing, the Australian Dollar rose 0.73% to $0.6665 after reaching a high of $0.6677, a level not seen since 16th May.

"The RBA's second consecutive hawkish surprise should fuel an extension of the recent rally," taking it initially through the 200-day moving average at 0.6692, followed by the 100-day moving average at 0.6748, according to Westpac strategist Sean Callow.

Whereas in the US, the Dollar index – measuring the currency against six peers – fell 0.11% to 103.89 after rallying to a two-and-a-half-month high of 104.70 at the end of May. However, it declined as Federal Reserve officials signalled they would miss out on a rate hike this month.

That said, Friday's jobs report led to bets for a July rate hike to increase.

The Federal Open Market Committee (FOMC) is due to set policy on 14th June, and as it stands, markets are pricing in a 75% chance of the Federal Reserve standing still, Reuters reports, compared to a 36% chance last week, as per the CME FedWatch tool.

"The soft ISM services PMI was unexpected, to say the least. Services have been a real pocket of resilience," according to IG Markets market analyst Tony Sycamore.

He added that with no key US data due for the rest of the week and Fed officials in a "blackout" period, "it looks to me like the Dollar is in a bit of a holding pattern ahead of the FOMC meeting.

"That makes sense because if you've got a position on here, you wouldn't want to add to it."

The greenback fell 0.05% to 139.49 Yen, whilst the Euro moved up 0.11% to $1.0722, and Sterling gained 0.12% to $1.2450.